FDI unflows plunge 92 percent to $11m despite portfolio investment surge

NIGERIA’S foreign direct investment (FDI) inflows plunged by 92 per cent month-on-month to just $11 million in September 2026, from $136.5 million in August, underscoring the country’s persistent struggle to attract long-term foreign capital despite renewed investor interest in short-term portfolio assets.

Data from FMDQ, analysed by Quest Merchant Bank, showed that total foreign exchange (FX) inflows through the Nigerian Autonomous Foreign Exchange Market (NAFEM) declined marginally by 1.5 percent month-on-month to $5.1 billion in September, as stronger foreign investor participation helped cushion a sharp drop in domestic FX supply.

Foreign inflows rose by 64 percent to $3.1 billion during the month, driven largely by foreign portfolio investment, which increased to $2.9 billion from $1.7 billion in August. The development suggests that attractive domestic yields and improving confidence in Nigeria’s macroeconomic and foreign exchange market conditions continued to draw offshore investors.

The stronger foreign currency supply also reduced the need for direct intervention by the Central Bank of Nigeria (CBN), with its FX sales falling by 66 per cent month-on-month to $479.2 million.

However, the decline in domestic FX inflows highlighted the continued vulnerability of market liquidity to changes in the composition of capital flows.

Aggregate domestic inflows fell to $2.1 billion in September from $3.3 billion in the preceding month, with all components of the domestic segment recording weaker inflows.

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Exporters’ proceeds declined by 20 per cent to $940.4 million, suggesting a reduction in the conversion of export earnings into the official FX market. Inflows from local corporates also fell by 11 per cent to $624.2 million, reflecting weaker participation by domestic businesses.

The contrasting movements in domestic and foreign inflows point to the country’s increasing reliance on offshore portfolio capital to support liquidity in the official FX market.

Further analysis of the data showed that foreign portfolio investment remained the dominant source of external FX supply during the month, accounting for the bulk of total foreign inflows.

Foreign corporate inflows also more than doubled to $129.7 million in September from $61.4 million in August, providing additional support to market liquidity.

However, the sharp decline in FDI underscored the weakness of longer-term investment flows, which are generally associated with productive assets, business expansion, technology transfer and employment creation.

Unlike portfolio investment, which can move quickly in response to changes in interest rates, exchange-rate expectations and global risk appetite, FDI is typically linked to longer-term commitments to productive sectors of the economy.

The September figures therefore suggest that renewed foreign investor interest has yet to translate into a corresponding recovery in long-term capital commitments to Nigeria.

Despite the CBN’s decision to cut the Monetary Policy Rate (MPR) to 23 per cent from 26.5 per cent, domestic yields remained sufficiently attractive to sustain offshore interest in Nigerian financial assets.

The rate reduction, equivalent to 350 basis points, lowered borrowing costs but did not eliminate the potential returns available to foreign investors seeking to benefit from interest-rate differentials through carry trades.

Such investments involve borrowing in currencies with relatively low interest rates and investing in assets denominated in currencies offering higher yields, although returns remain exposed to exchange-rate movements and changing market conditions.

Looking ahead, sustained foreign portfolio inflows, improved domestic FX supply and firm crude oil prices could help support liquidity and the naira in the near term.

However, the durability of that support will depend partly on whether Nigeria can strengthen export proceeds, attract more FDI and expand other sustainable sources of foreign currency.

A more balanced composition of FX inflows would reduce the market’s dependence on potentially volatile portfolio capital and provide a stronger foundation for exchange-rate stability.